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8/2/2019 Ownership Structure, Control Chains, And Cash Dividend Policy in China
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Ownership Structure, Control Chains, and Cash Dividend Policy:
Evidence from China
William Bradford
University of Washington, Seattle
Chao Chen*
California State University, Northridge
Song Zhu
Tsinghua University, Beijing
Abstract: Chinas corporate sector is unique in many aspects. For example, most
listed firms in the Shanghai and Shenzhen stock exchanges are carve-outs of state-
owned enterprises in China, stock ownership is highly concentrated, and government
bodies own a majority or controlling ownership of many publicly listed companies.
Furthermore, a high percentage of the stocks of listed firms is not fully circulated in
the Chinese stock market, but held by state-owned enterprises as non-tradable shares.
This paper investigates the cash dividend policy of listed companies in China fromthe
perspective of ownership structures and control chains that have evolved in Chinas
unique institutional and legal setting. The level of cash dividends per share is higher
for companies ultimately controlled by non-state entities than for those controlled by
the state, in particular, local government controlled firms. Local governmentcontrolled firms are more likely to pay less cash dividends because they have a greater
incentive than central government controlled firms to support its listed companies.
For companies ultimately controlled by the state, the longer the control chain, the
higher the probability of cash dividends, the higher cash dividends per share and
higher payout ratio. The opposite holds for firms that are not controlled by the state.
The cash flow right is positively related to the probability of a cash dividend
distribution, the level of the cash dividends, and the cash dividend payout ratio. The
greater the divergence of the control rights and the cash flow rights, the higher theincentive for those with dominant control rights to seek rents from shareholders with
minority control rights; in China the greater divergence leads to firms paying more
dividends.
Keywords: Ownership structure, Control chain, Cash dividends, Ultimate shareholder,
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Ownership Structures, Control Chains, and Cash Dividend Policy:
Evidence from China
1. Introduction
The governance and ownership structure in Chinas corporate sector differ
broadly from those in the U.S. and Europe (Lv and Wang, 1999; Yuan, 2001; Lee and
Xiao, 2003; Lv and Zhou, 2005). How do the differences affect dividend policy
among listed companies in China? Previous papers conclude that the existing theories
of dividend policy do not have much explanatory power for the dividend decisions of
firms in China (Lv and Wang, 1999; Lee and Xiao, 2003). This paper focuses on firms
in China, and seeks to answer the following questions: What are the incentives for
listed companies in China to distribute cash dividends? What determines the
probability of a cash dividend distribution, the level of cash dividends, and the payout
ratio of firms in China?
Chinas corporate sector is evolving from a unique institutional background. For
example, most listed firms in the Shanghai and Shenzhen stock exchanges are carve-
outs of state-owned enterprises in China, stock ownership is highly concentrated, and
government bodies hold a majority or controlling ownership in many publicly listed
companies. Furthermore, a large fraction of the stocks of listed firms are not fully
circulated in the Chinese stock market, but held by state-owned enterprises as non-
tradable shares. Investors and the market are unable to force the management, which
is usually appointed by the controlling shareholder, to make decisions in the best
interest of all shareholders.
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the identity of those who ultimately control the firm. Usually, the decision-making
rights of listed firms in China are in the hands of the controlling shareholders or
ultimate shareholders, rather than the management. We propose three hypotheses
about the cash dividend policy of listed companies in China: 1) the cash demand of
shareholders hypothesis; 2) the internal capital market hypothesis; and 3) the rent
seeking hypothesis.
The cash demand of shareholders hypothesis reflects that the capital supply
channels for companies controlled by non-state entities are inferior to those controlled
by the state (Xia and Fang, 2005; Brandt and Li, 2003). Ultimate shareholders of non-
state entities are more uncertain about the future regulatory changes than are ultimate
shareholders of state-controlled entities. That is, state-owned entities have more
impact on state regulatory changes than do non-state entities. This is particularly
important in China, which changes its securities laws through internal government
deliberations more than the public/legislative processes in the U.S. Shareholders of
non-state firms experience greater uncertainty, which translates into higher equity
opportunity costs and demand for cash nowdividends. This is magnified by state-
controlled firms obtaining debt capital more easily and at a lower cost than non-state
controlled firms. For these reasons, the cost of capital for non-state controlled
companies is higher than that of state controlled companies. Because of the cost of
funds held for investment, non-state controlled firms incur more surplus funds and
pressure to pay cash dividends. We find that the probability of cash dividend
distributions, the level of cash dividends per share, and the cash dividend payout ratio
are higher for listed companies ultimately controlled by non-state entities than for
those controlled by the state. This finding is consistent with the cash demand of
shareholder hypothesis.
Th i t l it l k t h th i t th t th f l th
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more of a finance channel using direct control rather than multi-layer control.
Therefore, they request listed companies to distribute more cash dividends to satisfy
their cash demand. Where the state has ultimate control, the longer the control chain,
the more severe is the agency problem. Fan and Wong (2005) suggest that a longer
control chain means an increase in the markets influence and less government
intervention. This leads to increases in the cost of capital, and the cash demand is
much greater. Controlling shareholders that are lower down the control chain require a
significant influx of cash from their listed companies to support their needs. We find
that the control chain is significantly negatively related to the probability of cash
dividend distributions, the level of cash dividends per share, and the payout ratio.
Therefore, for state-controlled listed companies, a longer control chain results in a
higher probability of cash dividend distributions, a higher level of cash dividends per
share, and a higher payout ratio. This result is consistent with our internal capital
market hypothesis.
The rent seeking hypothesis suggests that the incentive to seek rent from other
shareholders, especially the minority shareholders in China, should be positively
related to the divergence of control right and cash flow right (La Porta et al., 1999;
Claessens et al., 2000; Fan and Wong, 2002). The higher the divergence, the stronger
the incentive to seek rent from minority shareholders, making the listed firm more
likely to distribute cash dividends. The rent seeking hypothesis implies a dividend
policy that is on the surface counter to the concept that payment of dividends reduces
potential agency costs (Jensen, 1986). The controlling SOE directs the listed firm to
do a rights offering in which the parent SOE, which holds non-tradable shares, does
not subscribe. The firm then uses the proceeds of the rights offering to pay dividends.
This is equivalent to the SOE selling a portion of its non-tradable shares to other
h h ld L d Xi (2004) fi d f fi th t d t k thi t t th
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positive related to the probability of a cash dividend distribution, the level of the cash
dividends, and the cash dividend payout ratio. Furthermore, the greater the deviation
of the control right over the cash flow right, the higher the incentive to seek rent from
minority shareholders, thus the higher probability of a cash dividend distribution, the
higher the level of the cash dividends per share, and the higher the payout ratio. This
evidence is consistent with our rent seeking hypothesis.
We also find that the likelihood of listed companies to distribute cash dividends in
the prior year is positively associated with the probability that they distribute cash
dividends in the next year; and cash dividends per share and the payout ratio in the
prior year are consistent with those in the next year. Our results show that the
dividends policies of firms listed in the Shanghai and Shenzen stock exchanges were
relatively stable over the 1999 2004 period.
Section 2 reviews literature related to dividend policy, particularly the cash
dividend policy. Section 3 presents our hypotheses, and section 4 reports data and
samples. Empirical analysis and results are presented in section 5. Section 6 concludes
this paper.
2. Literature Review
The determinants of firms dividend policies have long been a puzzle in the
finance literature (Black, 1976). Theories of dividend policy include five streams: the
bird in hand theory (Graham and Dodd, 1951); the dividend signaling theory (Miller
and Modigliani ,1961; Bhattacharya, 1979, 1980; Miller and Rock, 1985; Aharony
and Swary, 1980; Healy and Palepu, 1988; DeAngelo et. al, 1992); agency theory
(Easterbrook, 1984; Jensen ,1986; La Porta et. al, 1998a, 1998b); the clientele effect
theory (Miller and Modigliani, 1961); and behavior theory (Thaler and Shefrin, 1981;
Kahneman and Tversky, 1979). It seems that signaling theory and agency theory are
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means the controlling shareholders have a channel to transfer resources from listed
companies. Thus, in China the listed firms ownership structure may have an impact
on dividend policy, especially the cash dividend. However, previous research on
dividend policy of firms in China has not included the impact of ownership structure
on dividend policy. In this paper we study the cash dividend policy of listed
companies in China from the perspective of the ultimate shareholder.
3. Hypotheses
In financial markets such as those in the U.S., ownership is highly diverse and
market power can force the management to distribute cash dividends to meet the cash
demand of investors. This is less true in China. Shareholders in China, especially
minority shareholders, have no power to force the management or controlling
shareholders to implement dividend policies that reflect minority shareholders wishes
when they differ from those of management or controlling shareholders (Yuan, 2001;
Lee and Xiao, 2003). In addition, the market has the power to monitor managerial
decisions in the U.S., while in China managers decisions and activities are more
opaque.
Different types of controlling shareholders may have different requirements of
cash dividends, especially for state-owned enterprises (SOEs) and non-state-owned
enterprises (NSOEs).1
In China, firms controlled by NSOEs find it more difficult to
raise debt capital than firms with government ownership (Gul, 1999; Brandt and Li,
2003). This is especially true for debt financing from banks, which have been
historically controlled by the state. Since they are restricted in debt financing,
companies controlled by NSOEs rely more on equity financing. The greater reliance
on equity increases the non-state controlled firms cost of capital compared to the
state-controlled company. Thus for the same schedule of projects ranked by yield, the
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and thus will pay out more dividends to stockholders because of surplus funds. In
addition, to be able to raise external equity on attractive terms, a firm will pay
dividends to establish a reputation for fair treatment of minority shareholders. This
would also result in higher dividends.
Although Chinas government entities can force companies they control to
distribute cash dividends, the key problem is how to deal with the cash collected from
the dividends. Another problem is how much to distribute between the central
government and the local government. This conflict between Chinas government
entities affects the dividend policy of firms controlled by Chinas government bodies.
Because of such unsolved problems, profits are usually left in the companies; fewer
dividends are distributed by those controlled by the state. Furthermore, companies
controlled by the state have an advantage in obtaining capital at lower costs and more
easily than those controlled by non-state owners.
(1) The probability of cash dividend distribution, the level of cash dividends,
and the payout ratio of cash dividends are higher for companies ultimately
controlled by non-state entities than for those ultimately controlled by state.
Why do shareholders invest in companies, particularly listed companies? It may
be that they not only want to have stock appreciation, but also are eager for cash
dividends, especially the cash dividends when the companies are operated efficiently
and profitably. The reason for listed companies to distribute cash dividends is because
the ultimate shareholders have much cash flow rights in the listed companies.
Previous research such as Lv and Wang (1999), Yuan (2001), Lee and Xiao (2003), Lv
and Zhou (2005) have used the control right to proxy the controlling shareholders
expropriation incentive. Their findings indicate that control right has a great influence
on the cash dividend. We contend that the incentive to obtain cash dividends is based
h fl i ht d th t th i lt h ld b t l i ht iti l
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higher the cash dividend payout ratio distributed from listed companies.
According to Jensen and Mecklings (1976) theoretical framework, a highly
diverse ownership structure and the separation of ownership and control of the firms
resources can lead to severe agency costs. Managers, who control the firm, may
expropriate value from the firm through perks and other means. The payment of cash
dividends can reduce this problem since management will have fewer resources
available to expropriate (Jensen, 1986; La Porta et al. 2000). Faccio et al. (2002)
propose that dividends used as a means to restrain the tunneling conduct of insiders is
applicable in Asia and Europe. But in China the payment of dividends can be the
outcome of the agency problem rather than a means to control the agency cost (Yuan,
2001; Lee and Xiao, 2003). As a reflection of Chinas economic transition, most
listed firms in China were carved out from state-owned enterprises (SOEs). The
parent SOE holds the non-tradable state shares of the listed firm, and the new
shareholders from the IPO hold tradable shares (Lv and Zhou, 2005). The non-
tradable shares can be traded only with private placement between institutions under
special permission from the government.
The parent SOE directs the listed firm to undertake a rights offering in which the
parent SOE does not subscribe. The firm then uses the proceeds of the rights offering
to pay dividends. This is equivalent to the SOE selling a portion of its non-tradable
shares to other shareholders. Lee and Xiao (2004) find that the computed selling
price is about three times higher than the price officially approved through private
placement. In these cases, dividend payments are the outcome of the agency problem;
controlling shareholders use cash dividends to expropriate funds from the firm (Yuan,
2001; Lee and Xiao, 2003). The incentive to seek rent from other shareholders, in
China especially the minority shareholders, should be positively related with the
di f t l i ht d h fl i ht (L P t t l 1999 Cl t l
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strategy.2
Since both the signaling effect and the benefit transferring effect have the
same results according to the divergence of control right and cash flow right, which
effect is more reasonable in China is uncertain. To distinguish the signaling incentive
and the benefit transferring incentive, we add another variable, free cash flow (FCF),
into the model. FCF can be proxy for the signaling effect; if the coefficient for this
variable is not significant, we can accept it for the other reason, which is the benefit
transferring incentive.
(3)The higher the divergence of control right and cash flow right, the higher
the probability of cash dividends, the higher the level of cash dividends, the higher
the cash dividend payout ratio.
It has been advocated that the longer the control chaini.e., the corporate layersof
the firm, the more powerful the internal investment markets work in the firm. This
has two elements. First, investable funds can be more easily allocated within the firm.
Funds may be allocated among firms in the chain in order to use more of the available
funds (Williamson, 1985; Stein, 1997). Second, Fan et al have found that in China the
pyramidal structures are used to cross subsidize members of the chain. Ultimate
shareholders and controlling shareholders have more financing channels using multi-
layer control. Thus debt funds are more available, which reduces the cost of capital.
Both of these will lead to lower dividends for non-state owned firms. But for state-
owned companies, Fan and Wong (2005) suggest that a longer control chain means a
greater influence by market forces, and thus government intervention and support
decline as the control chain increases. Thus, as the control chain of a state-controlled
firm increases, the uncertainty from regulatory changes increases and the ease of bank
debt financing declines. Thus the cost of capital rises, more investments become
unprofitable and the firm will pay more dividends.
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(4) For state owned firms, as the control chain lengthens, the higher the
probability of cash dividends, the level of cash dividends and the level of cash
dividends per share that the listed companies distribute. For non-state owned firms
a longer control chain results in the opposite effects.
4. Data and Sample
4.1 Data Sources
Chinese listed companies have been required to disclose cash flow statements in
their annual financial reports since 1998. To make the financial data consistent in our
sample firms, we collect data from 1999. Our sample includes companies listed in
Chinas stock market from 1999 through 2004. The companies issued only A-shares
or A-shares and other types of shares, such as B, H or S. Investors external to China
represented by investors in the B, H and S sharesare subject to different laws and
regulations than domestic China investors. We seek to avoid possible distortion in our
results for domestic Chinese markets (Lee and Xiao, 2003). Thus in our robust tests
we exclude firms that issue B shares, H shares or S shares in addition to A-shares.
Our data on ownership structure was excerpted manually from the 1999 to 2004
annual financial reports of Chinese listed companies. For each firm, we collected
information on the control rights of controlling shareholders, superior shareholders,
and ultimate shareholders. Then we computed the divergence of control rights and
cash flow rights using the same method as La Porta et al. (1999), Claessens et al.
(2000) and Fan and Wong (2002). We also recorded information on the ultimate
shareholders if disclosed in the annual financial reports. However, if a firm did not
disclose enough ownership structure information, we searched their websites and
other sources to identify the ultimate shareholders. Cash dividends and other financial
data are from Genius Database, a widely cited professional database in China. In
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or had other missing information, we were left with a sample size of 6,649 from 1999
to 2004. Dropping 33 observations in financial industry and 85 outliers from 1999 to
2004, there are 6531 observations in final regressions, 847 in 1999, 990 in 2000, 1070
in 2001, 1151 in 2002, 1214 in 2003 and 1259 in 2004. The sample selection process
was reported in Table 1.
(Insert Table 1 about here)
4.2 Variables
4.2.1 Cash Dividend Policy (DIVAT, PREDIV, DPS, PREDPS, and PAYOUT,
PREPAYOUT)
We now introduce the variables describing dividend policy. DIVAT indicates
whether the listed company distributesd cash dividends in the current year (1 = yes, 0
= no). PREDIV specifies whether this firm m distributed cash dividends in the prior
year (1 = yes, 0 = no). DPS is the cash dividend per share in the current year and
PREDPS is the cash dividend per share in the prior year. PAYOUT is the cash
dividend payout ratio, which equals the cash dividend per share divided by the current
earnings per share. PREPAYOUT is the cash dividend payout ratio for the prior year.
4.2.2 Ownership Structure (V, C, CV, State and Chain)
As in Liu et al. (2003), Lai and Wu (2003), and Xia and Fang (2005), ultimate
shareholders are divided into two categories: state and non-state. STATE (1 = yes, 0 =
no) is the resulting indicator variable. Further, in order to investigate the influences of
different government authorities, we classified the State into central government
(CentralGov) and local government (LocalGov), both are dummy variables. Since
many controlling shareholders not only control listed companies directly, but also
control them indirectly through their subsidiaries invested in the same companies, the
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(1999), Claessens et al. (2000) and Fan and Wong (2002). They define cash flow right
as the product of each control right in the control chain. When measuring this variable
we also consider indirect control and multiple controls. The divergence of the control
right and the cash flow right is CV, calculated as the cash flow right divided by the
control right. Since we identify all controlling parties, we obtain the length of the
control chain. The control chain, CHAIN, represents the agent chain and the proxy for
the power of the internal capital market from the ultimate shareholders to the listed
companies, though not very precisely (Williamson, 1985; Stein, 1997; Fan et al, 2005).
The interaction term STATECHAIN (calculated as STATE*CHAIN) reflects the
association between the length of the control chain for state-owned companies.
4.2.3 Control Variables (ARECNO, FCF, FCFPS, ROA, EPS, PREFINANCE,
STDIV, STDIVPS and FIXED)
Since growing firms need cash for their investments, they tend to pay less cash
dividends. Growth is a key determinant of the dividend policy, thus we use the
revenue growth, calculated by the one year revenue growth rate, to control for this
effect.
ARECNO measures the cash embezzled by the controlling shareholders. Since
controlling shareholders and ultimate shareholders can tunnel the listed companies
both by expropriating directly and by cash dividends, to investigate the influence of
ownership structure on dividend policy, or the legal means, we should control for the
illegal means. Ma et al. (2005) define ARECNO as other accounts receivables divided
by total assets, which can be regarded as a proxy for the cash expropriated directly by
the controlling shareholder, since it is a common usage in China.
FCF is the free cash flow, which is equal to net cash flow from operating activities
minus cash expenditures on acquisition of fixed assets, intangible assets and other
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and the signaling incentive (La Porta et al., 2001; Faccio et al., 2002). FCFPS is the
free cash flow per share, equal to free cash flow divided by total shares at the end of
the year.
We control for the relationship between profitability and dividends by including
ROA and EPS as independent variables. ROA is calculated as net income divided by
total assets at the end of the year; and EPS is the earnings per share for the current
year. PREFINANCE is used to reflect the tunneling hypothesis proposed by Lee and
Xiao (2003). PREFINANCE (1 = yes, 0 = no) indicates whether the company
launched a seasoned offering in the prior year. A positive coefficient for
PREFINANCE indicates that the seasoned offering enhances the incentive of the
tunneling. STDIV (1 = yes, 0 = no) indicates whether the company distributed a stock
dividend. STDIVPS is the stock dividend per share. We also use the total debt ratio
(LEV) to control for the effect of financial leverage.
We also control for industry by including indicators for the 12 industry categories
used by the CSRC after dropping the financial industry: A. agriculture, forestry, herd
and fishery; B. mining; C. manufacturing; D. electricity, gas and water supply; E.
construction; F. traffic, storage and post; G. electron city; H. wholesale and retail; J.
estate; K. social service; L. culture, sports and entertainment; and Z. general. In
regressions we use 11 dummy variables and Z as the base. To eliminate the influence
of macro-economy among different years, we also include indicator variables to
reflect the six years 1999 through 2004. In the tables that report our regression results,
we use Yeardummy and IndDummy to indicate the industry and year effects.
5. Empirical Analysis
5.1 Statistical Description
5.1.1 Cash Dividend Policy
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which translates to an average payout ratio of 54%. Indeed several companies still
paid cash dividends although they suffered losses in that year. In 2001, both the DPS
and PAYOUT seem to be different from those in other years, which may be due to the
the CSRCs new regulation for equity refinancing required listed companies to
distribute cash dividends. In robustness check, we check the structural change in cash
dividend distribution before 2001 and after that year.
(Insert Table 2 about here)
To illustrate the cash dividend policy of listed companies in China intuitively, we
report the distributions of DIVAT, DPS and PAYOUT in Figures 1 to 3. Figure 1
shows the DPS distribution. Horizontal axle indicates the DPS, while vertical axle
shows the fraction. Figure 1(a) gives the total sample DPS distribution.
Approximately half samples do not distribute cash dividends, 0 each share. And more
than 40% of the rest distribute less than RMB 0.2 per share. Figure 1(b) displays the
distribution in each sample year. Results are basically the same except that a higher
proportion of companies distribute cash dividend in 2000 and 2001 compared with
1999. In addition, companies seem to distribute more cash dividends in 2000 and
2001. Figure 1(c) reveals the distribution among companies controlled by the central
government, local governments and private entities. It appears that SOEs distribute
more cash dividends than NSOEs.
Figure 2 shows the PAYOUT distribution. The horizontal axis indicates the
PAYOUT ratio, while vertical axis shows the fraction. Figure 2(a) shows the total
PAYOUT distribution, Figure 2(b) displays the sample year distribution and Figure
2(c) shows the distribution among companies controlled by central government, local
governments and private entities. All results are basically consistent with figures and
conclusions above.
(I t Fi 1 d 2 b t h )
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shareholders to their controlled listed companies, which is a proxy for the internal
capital market. Table 3 shows the control chain distribution of sample firms in each
category and in each year.
(Insert Table 3 about here)
Panel A shows the distribution of total sample firms. For both SOEs and NSOEs,
most listed companies are controlled by ultimate shareholders through two or three
layers. Central government is more likely to control listed companies through
multiple layers than local governments. Panel B gives the distribution in each sample
year. Both the central government and local governments tend to decentralize their
power, which results in a lower percentage of listed companies directly controlled by
the state. An increasing amount of listed companies are controlled by the state through
more layers, which results in the descending proportion of companies in 1 and 2
layers. This phenomenon is also presented in listed companies controlled by NSOEs.
Figure 3 shows the graphs for the sample density of the distribution of control chain
in each category and in each year.
(Insert Figure 3 about here)
5.1.3 Divergence of Cash Flow Rights and Control Rights
One of our focuses is on the influence of the agency problem coming from the
divergence of cash flow rights and control rights (voting rights); thus Table 4 gives
the CV distribution of sample firms in detail.
(Insert Table 4 about here)
Panel A reveals the distribution of total sample on CV. The average CV for state
controlled firms is 0.9217, 0.8429 for central government-controlled firms and 0.9470
for local government controlled firms, while the mean CV is 0.6462 for firms
controlled by NSOEs. The mean CV in Panel B for State-controlled firms also
i di t th t th t b di d t li th i lti i l
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power on the listed companies, which is consistent with La Porta et al. (1999),
Claessens et al. (2000) and Fan and Wong (2002). Figure 4 illustrates the CV
distribution in each category and in each sample year.
(Insert Figure 4 about here)
5.1.4 Other Regression Variables
Table 5 shows the descriptive statistics of regression variables. Average ROA for
the six years is 2.12% and median ROA is 3%, showing that the return and
profitability of listed companies is low in those years. Mean EPS is RMB 0.15, while
the median is RMB 0.17. Both the profitability indicator show great deviation,
revealing the distinguished difference in the return on investment in China. The
control right of ultimate shareholders is 45.89% on average, while the cash flow right
is 40.45%, and divergence of these two rights are not severe in Chinese listed
companies, especially for those controlled by state.
(Insert Table 5 about here)
5.2 Model Specification
5.2.1 Linter Dividend Model
Our model is principally based on the Linter (1956) dividend model, such that
,it i i t D r P= and*
, 1 , 1( )it i t i i it i t iD D c D D = + +
*
itD is the objective dividend payout; ir is the objective payout ratio;
,i tP is earnings per share; itD and , 1i tD are cash dividends in year t and year t-1.
Adjusting those models, we are left with:
, 1 , 2 , 1 ,i t i t i t i t D P D = + + +
5.2.2 Our Dividend Model
First we use the discrete choice model to examine how the ownership structure
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cash dividends is as follows:3
1 2 3 4
5 6 7 8 9 10
25
11 12 13
14
30
26
* * ( , ) * *
* * * * * *
* * * *
*
i
i
j
j
DIVAT PREDIV STATE CenterGov LocalGov C CV
CHAIN STATECHAIN ARECNO GROWTH ROA FCF
PREFINANCE STDIV LEV INDSDUMMY
YEARDUMMY
=
=
= + + + +
+ + + + + +
+ + + +
+ +
Then, we investigate the influence of ownership structure on the amount of cash
dividends per share. The linear regression (OLS) model on the determinants of cash
dividends per share is as follows:
1 2 3 4
5 6 7 8 9
25
10 11 12 13
14
30
26
* * ( , ) * *
* * * * *
* * * * *
*
i
i
j
j
DPS PREDPS STATE CenterGov LocalGov C CV
CHAIN STATECHAIN ARECNO GROWTH EPS
FCFPS PREFINANCE STDIVPS LEV INDSDUMMY
YEARDUMMY
=
=
= + + + +
+ + + + +
+ + + + +
+ +
Finally, the influence on the cash dividend payout ratio is examined using the
ownership structure. The OLS model on the determinants of the cash dividend payout
ratio is as follows:
1 2 3 4
5 6 7 8 9 10
25
11 12 13
14
30
26
* * ( , l ) * *
* * * * *
* * * *
*
i
i
j
j
PAYOUT PREPAYOUT STATE CenterGov Loca Gov C CV
CHAIN STATECHAIN ARECNO GROWTH ROA FCF
PREFINANCE STDIV LEV INDSDUMMY
YEARDUMMY
=
=
= + + + +
+ + + + + +
+ + + +
+ +
We use Whites adjusted t statistics to adjust for hetero-scedasticity that may
be prevalent in our cross-sectional data
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5.3 Empirical Results
Table 6, 7 and 8 are respectively the Probit model predicting whether the firm
pays a cash dividend, the OLS model predicting the amount of cash dividend, and the
OLS model predicting the dividend payout ratio. Each of these tables reports the
results of six regressions. The first two regressions use all of the sample firms. As a
robustness check we use the definition of ultimate shareholder in La Porta et al.
(1999), Claessens et al. (2000) and Fan and Wong (2002); namely, the control right
exceeds 20%. The next two regressions show the results based on this definition. In
the last two regressions we avoid the effect of foreign investors influence, by
dropping the firms that issue both A shares and other type of shares, such as B, H or
S.4
In each of the sub-sample we further investigate the distinction under the
influence of different government, including central government and local
government.
The coefficients reflecting whether the firm paid cash dividends, the level of cash
dividend and the payout ratio in the prior year are significantly positive. Companies
distributing dividends last year have a higher probability of paying dividends this year
with the same amount and the same proportion of cash dividends from earnings.
As observed by previous studies on corporate control in China, it has been easier
in the Chinese system than in other systems (the U.S. for example) for controlling
shareholders to directly expropriate funds from listed firms. However, direct
expropriation is illegal. Therefore, cash dividends are regarded as an alternative
method for controlling shareholders to obtain funds from the firm. Coefficients forARECNO are significantly negative in all three regressions in Tables 6, 7 and 8,
indicating that cash dividend and expropriation are two complementary artifices for
controlling shareholders to tunnel listed companies, which is consistent with Ma et al.
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Table 6, inconsistent with theory predicts. However, it may be explanatory since
growth firms will distribute cash dividend in order to attract investors for their firms
to finance more to invest. Growth is negatively related with the cash dividend per
share in Table 7 though not significantly, and it is significantly negative in payout
ratio determination in Table 8, consistent with the theory.
A firms profitability affects the probability of cash dividend distribution: a higher
return on assets predicts a higher probability of paying a cash dividend. This finding
is consistent with Lv and Wong (1998), Yuan (2001) and Lee and Xiao (2003).
According to agency theory (Easterbrook, 1984; Jensen ,1986; La Porta et. al,
1998a, 1998b) and signaling theory (La Porta et al., 2001; Faccio et al., 2002), the
more free cash flow in listed companies, the higher the probability of a cash dividend
distribution. But our results are that the coefficient for FCF is significantly negative in
Table 6 and insignificant in Table 8 and positively significant in the whole sample
regression in Table 7,inconsistent across all the regressions and also inconsistent with
the result of Lee and Xiao (2003). Since the CSRC and other regulatory authorities
required the distribution of cash dividends for equity refinancing after 2001, different
sample periods may result in different findings. Lee and Xiao (2003) use the sample
period from 1993 to 2001, but we use the sample period from 1999 to 2004.
Firms that issued a seasoned offering in the prior year are less likely to pay
dividends in the current year. This finding is inconsistent with Lee and Xiaos (2003)
results. This may be due to the regulatory changes of the CSRC and other regulatory
authorities that require seasoned offerings with cash dividend distributions. Another
explanation is that companies issued seasoned offering last year tend to do more
investments and have less cash to distribute dividend. We also find that the
distribution of stock dividends is positively related to the probability of distributing
h di id d hi h i i i t t ith L d Xi (2003) Thi t b
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related to the probability of distributing cash dividends, which is inconsistent with
Lee and Xiao (2003). While in Table 7 and Table 8, this variable is significantly
negatively related with the DPS and PAYOUT ratio, consistent with Lee and Xiao
(2003). Leverage is significantly negatively related to the probability of distributing
cash dividends and the payout ratio, consistent with our prediction that firms with
higher debt ratios distribute less cash dividends due to debt restrictions or capital
rationing.
We expect that non-state entities have a greater need to obtain cash for ordinary
use, other operating activities, or investment compared with state enterprises. In
Tables 6 and 8, the coefficients for STATE, also CentralGov and LocalGov, are
insignificant negative in all regressions. Results show that the probability of cash
dividend distribution and the payout ratio are not significantly different among SOEs
and NSOEs. Local government and central government also show no significantly
influence on the cash dividend payout ratio and probability on listed companies.
However, the coefficients for STATE are significantly negative in all regressions in
Table 7. This may indicate that the probability for companies controlled by the
government and for non-state entities to distribute cash dividends is not significantly
different. Whereas, the amount of cash dividends and the payout ratio are all
significantly higher for NSOEs than for SOEs. When categorize the State into central
government and local government, the results of regression analysis show that
companies controlled by local government distribute cash dividends per share
significantly lower than those controlled by central government and private entities.
Local government has more incentive to support the listed companies for the benefits
of local economy and other social liabilities. These findings basically support our
predictions.
Th h fl i ht i iti l l t d t th b bilit f h di id d
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incentive to seek rent from minority shareholders, thus the higher the probability of a
cash dividend distribution. This may be due to the signaling incentive, but
incorporating the effect of FCF, these results in each of the three categories of samples
are consistent with our rent seeking hypothesis. These results in each of the three
categories of samples in Tables 6, 7, and 8 are consistent with our hypothesis.
The length of the control chain is significantly negatively related to the DIVAT,
DPS and PAYOUT in all regressions in Tables 6, 7, and 8. The longer the control
chain, the more powerful the internal capital market, so ultimate shareholders need
not transfer more cash from listed companies. Cash may be used for other investment
activities or acquisitions.However, the coefficient for STATECHAIN is significantly
positive in all regressions, showing that the longer control chain, the more severe the
agency problem. Longer control chain of the state-owned companies cannot seek
financing and other support from the government as easily as those directly controlled
by the government. Results in each of the three categories of samples in Tables 6, 7
and 8on the control chain are all consistent with our hypothesis.
(Insert Tables 6, 7, and 8 about here)
5.4 Robustness test
5.4.1 Systematically Change
On March 28, 2001, the CSRCs new regulation for equity refinancing required
listed companies to distribute cash dividend. Thus, the cash dividend policy may
change systematically after that year. It has been observed that cash dividends and
related party transactions are means for controlling shareholders to transfer resources
from listed companies in China (Lee and Xiao, 2003; Lv and Zhou, 2005). However,
cash dividends have become a requirement for listed companies that issue new shares
since 2001. Meanwhile, regulations on related party transactions are becoming more
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party transactions, while enhancing the role of cash dividends. To investigate the
influence of those regulations, we divide our data into two time periods: 1999 to 2001,
and 2002 to 2004.
(Insert Tables 9, 10, and 11 about here)
In Table 9, State, both central government and local government, is still not
significantly in all time periods. Ownership structure influence seems to be stronger in
A-share sub-sample, both before 2001 and after 2001. In Table 10, government
influence seems to be more significantly pervasive before 2001. And the tunneling
effect is more obvious after 2001. However, the government seems to have more
influence after 2001 when we analyze the cash dividend payout ratio in Table 11.
Generally speaking, the regulations seem to have an influence on the cash
dividend policy, payout ratio and DPS after 2001. Since some companies pay out cash
dividends even if they suffer losses in some years, the payout ratio and the prepayout
ratio are negative, and those cases may be quite different from the others. Companies
in the financial industry have the different characteristics in financial data and they are
excluded from the regression samples. In our robustness check, we include the whole
samples into the regression. Therefore, we have 6649 observations. The results are
even more significant, which are consistent with our findings.
5.4.3 Only ownership structure as explanatory variables
Because the DIVAT and PREDIV are highly correlated, so are DPS and PREDPS,
and PAYOUT and PREPAYOUT. PREDPS and PREPAYOUT may capture most of
the explanatory power. We also drop those variables for sensitivity analysis. The
results are the same as above, and dropping the variables for the prior year does lower
the power of the test; however, ownership structure still explains much of the cash
dividend policy of listed companies.
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investors. In an emerging market like the Chinese stock market, investors, especially
the minority shareholders, do not have enough power to force the management or
controlling shareholders to distribute cash dividends. Controlling or ultimate
shareholders demand for cash influence managerial decision on cash dividends. We
investigate the cash dividend policy of listed companies in China from perspectives of
firms ownership structures and chains of control. We find that the level of cash
dividends is higher for companies ultimately controlled by non-state entities than for
those ultimately controlled by the state; whereas the probability of cash dividend
distribution and the cash dividend payout ratio are not significantly different. Even in
the SOEs, central government and local government have different incentives and
thus the influence on dividend. We also document that the higher the cash flow right
of ultimate shareholders, the higher the probability of cash dividends, the higher the
level of cash dividends, and the higher the level of cash dividend payout ratio.
According to the studies by La Porta et al. (1999), Claessens et al. (2000), and Fan
and Wong (2002), the incentive to seek rent from other shareholders, in China
especially the minority shareholders, should be positively related with the divergence
of the control right and the cash flow right. Our results support this theory.That is, the
higher the divergence, the stronger the incentive to seek rent from minority.
Furthermore, we show that the longer the control chain, the lower the probability of
cash dividends, the level of cash dividends, and the level of cash dividends per share.
However, for companies ultimately controlled by the state, longer control chain will
bring an opposite effect, the longer the control chain, the higher the probability of
cash dividends. Regulations have much influence on the incentives of managements
and controlling shareholders, and can change their behavior. In this paper, we also
investigate the influence of regulation on cash dividend, showing its effects.
Th i t l it l k t i h t t i i t Th t l i
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market function should attract more researchers attention. Since in 2001, CSRC
issued regulations on the cash dividend of listed companies in China concerning IPO
and other financing activities, the behavior of listed companies and controlling
shareholders will change to some extent. Whether companies distribute cash dividend
to meet those regulations and what is the consequence is much interesting, however
we do not investigate this in our paper and that will be what should be further
investigated.
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Table 1: Sample Selection Process
Listed companies from 1999-2004 6935
Ultimate shareholder cannot be identified 286
Companies identified with ultimate shareholders 6649
Companies in Financial Industry 33
Outliers: 85
Payout>5 7
Payout5 5
PrePayout
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Figure 1: The Distribution of Dividends Per Share (DPS)
Figure 1(a)
0
.1
.2
.3
.4
.5
Fraction
0 .2 .4 .6 .8 1DPS
Figure 1(b)
0
.2
.4
.6
0
.2
.4
.6
0 .5 1 0 .5 1 0 .5 1
1999 2000 2001
2002 2003 2004
Fraction
DPSGraphs by Year
Figure 1(c): C: Central government controlled firms, L: Local government controlled firms,
P: Non-state controlled firms
0
.2
.4
.6
.6
0 .5 1
C L
PFraction
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Figure 2: Distribution of Payout Ratio in sample firms
Figure 2(a)
0
.1
.2
.3
.4
.5
Fraction
0 1 2 3 4 5PAYOUT
Figure 2(b)
0
.2
.4
.6
.8
0
.2
.4
.6
.8
-1.18e-09 5-1.18e-09 5-1.18e-09 5
1999 2000 2001
2002 2003 2004
Fraction
PAYOUTGraphs by Year
Figure 2(c): C: Central government controlled firms, L: Local government controlled firms,
P: Non-state controlled firms
0
.2
.4
.6
.6
-1.18e-09 5
C L
PFraction
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Figure 3: The Distribution of Control Chain of Sample Firms
Figure 3(a)
0
.2
.4
.6
Fraction
1 2 3 4 5Chain
Figure 3(b)
0
.2
.4
.6
0
.2
.4
.6
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
1999 2000 2001
2002 2003 2004
Fraction
ChainGraphs by Year
Figure 3(c): C: Central government controlled firms, L: Local government controlled firms,
P: Non-state controlled firms
0
.2
.4
.6
.8
6
.8
1 2 3 4 5
C L
PFraction
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Table 4: Statistic Description on the CV
Panel A: Distribution by ownership
CV
N Mean SD Min Median MaxSTATE 5191 0.9217 0.1881 0.0199 1 1
CentralGov 1265 0.8429 0.2618 0.0199 1 1
LocalGov 3926 0.9470 0.1485 0.1346 1 1
PRIVATE 1340 0.6462 0.3014 0.0171 0.6631 1
TOTAL 6531 0.8651 0.2431 0.0171 1 1
Panel B: Distribution by year
CV
State N Mean SD Min Median Max
1999 735 0.9447 0.1619 0.0361 1 1
CentralGov 159 0.8732 0.2504 0.0361 1 1
LocalGov 576 0.9644 0.1200 0.1807 1 1
2000 843 0.9399 0.1657 0.0361 1 1
CentralGov 189 0.8642 0.2492 0.0361 1 1LocalGov 654 0.9618 0.1240 0.1807 1 1
2001 891 0.9298 0.1806 0.0361 1 1
CentralGov 212 0.8478 0.2637 0.0361 1 1
LocalGov 679 0.9554 0.1357 0.1448 1 1
2002 904 0.9197 0.1899 0.0361 1 1CentralGov 222 0.8361 0.2655 0.0361 1 1
LocalGov 682 0.9469 0.1481 0.1448 1 1
2003 911 0.9025 0.2071 0.0361 1 1
CentralGov 239 0.8214 0.2715 0.0361 1 1
LocalGov 672 0.9313 0.1699 0.1444 1 12004 907 0.8993 0.2076 0.0199 1 1
CentralGov 244 0.8296 0.2632 0.0199 1 1
LocalGov 663 0.9249 0.1763 0.1346 1 1
Private N Mean SD Min Median Max1999 112 0.6643 0.3075 0.0971 0.70 1
2000 147 0.6599 0.2934 0.0971 0.70 1
2001 179 0.6493 0.2979 0.0971 0.70 1
2002 247 0.6395 0.3030 0.0562 0.65 1
2003 303 0.6352 0.3065 0.0171 0.65 12004 352 0.6473 0.3008 0.0171 0.67 1
Total N Mean SD Min Median Max
1999 847 0.9077 0.2102 0.0361 1 1
2000 990 0.8984 0.2145 0.0361 1 12001 1070 0.8828 0.2300 0.0361 1 1
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Figure 4: The Distribution of the Divergence of the Control Right and the Cash Flow Right
(CV) of Sample Firms
Figure 4(a)
0
.2
.4
.6
.8
Fraction
0 .2 .4 .6 .8 1CV
Figure 4(b)
0
.2
.4
.6
.8
0
.2
.4
.6
.8
0 .5 1 0 .5 1 0 .5 1
1999 2000 2001
2002 2003 2004
Fraction
CVGraphs by Year
Figure 4(c): C: Central government controlled firms, L: Local government controlled firms,
P: Non-state controlled firms
0
.2
.4
.6
.8
8
0 .5 1
C L
PFraction
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Table 5: Descriptive Statistics
DIVAT, the dependent variable, is a dummy variable. One indicates the listed company distributing cash
dividends at current year, zero otherwise; PREDIV is also a dummy variable. One indicates the listed
company distributing cash dividends at prior year, zero otherwise; DPS, the dependent variable, the cash
dividends per share listed company distributes in current year; PREDPS is the cash dividends per share
distributed by the listed company at prior year; PAYOUT, the dependent variable, the cash dividend
distributed by the listed company from its earnings in current year; PREPAYOUT is the cash dividend
distributed by the listed company from its earnings at prior year; ROA: Return on Asset=Net income/Total
assets at the end of the year; EPS: earnings per share, EPS=Net income/Total shares at the end of year;
FCF: the free cash flow=(Net cash flow from operating activities- cash expenditures on acquisition of fixed
assets, intangible assets and other long-term assets)/Total assets at the end of year; FCFPS: the free cashflow=(Net cash flow from operating activities-cash expenditures on acquisition of fixed assets, intangible
assets and other long-term assets)/Total shares at the end of year; PREFINANCE, a dummy variable, 1
indicates that the listed company launched a seasoned offering in prior year, 0 otherwise; STDIV, a dummy
variable, 1 indicates that the listed company distributes stock dividends, 0 otherwise; STDIVPS the stock
dividends per share distributed by the listed company in current year; ARECNO, capital expropriated by
the controlling shareholder, equals to the other receivables divided by total asset; GROWTH, revenue this
year divided by the revenue last year; LEV: the leverage of debt, equals to the total debt divided by the
total assets at the end of the year;V: Control right of ultimate shareholder; Sum of the bottom levelcontrol rights of ultimate shareholder allowing for indirect control and multiple controls; C: Ownership
right (the cash flow right): The product of each control right through the control chain; CV: the divergenceof the control right and the cash flow right, CV=C/V; Chain: Agent chain from the listed companies (the
bottom of the pyramid) to the ultimate shareholders; StateDummy variable, 1 indicates that the ultimate
shareholder is the government, and 0 denotes the companies owned by non-state entities.
Variables N Mean STD Min Median Max
DIVAT 6531 0.5188 0.4997 0 1 1
PREDIV 6531 0.4699 0.4991 0 0 1
DPS 6531 0.0709 0.1014 0 0.02 1
PREDPS 6531 0.0644 0.1005 0 0 1.25
PAYOUT 6531 0.2757 0.3847 0 0.12 4.88
PREPAYOUT 6531 0.2492 0.3786 0 0 4.88
ROA 6531 0.0212 0.0842 -0.99 0.03 0.51
EPS 6531 0.1507 0.3521 -3.11 0.17 2.88
FCF 6531 -0.0194 0.1000 -0.75 -0.01 0.74
FCFPS 6531 -0.1416 0.6975 -8.36 -0.05 9.77
PREFINANCE 6531 0.1116 0.3149 0 0 1
STDIV 6531 0.0652 0.2469 0 0 1
STDIVPS 6531 0.0128 0.0569 0 0 0.80
ARECNO 6531 0.0720 0.0965 0 0.04 1.08
GROWTH(%) 6531 23.3199 60.8088 -100 14.78 971.94
LEV(%) 6531 46.7512 25.6760 0.81 45.08 498.92V(%) 6531 45.8877 16.9392 5.00 46.00 89.00
C(%) 6531 40.4494 19.5531 1.00 40.00 89.00
CV 6531 0.8651 0.2431 0.02 1.00 1.00
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Table 6: Probit Model on the Determinants of Cash Dividend Policy
Variables ExpSignModel
All sample
Model
All sample
Model
V>0.2
Model
V>0.2
Model
A-Share
Model
A-Share
PREDIV +0.8666
(21.51)***
0.8665
(21.50) ***
0.8657
(21.06) ***
0.8658
(21.06) ***
0.7958
(18.73) ***
0.7961
(18.74) ***
STATE --0.1288
(-0.90)
-0.0973
(-0.66)
-0.1121
(-0.77)
CentralGov --0.0490
(-0.31)
-0.0350
(-0.22)
-0.0384
(-0.24)
LocalGov --0.1178
(-0.82)
-0.0892
(-0.61)
-0.1021
(-0.70)
C + 0.4177(3.10) ***
0.4178(3.10) ***
0.4484(3.06) ***
0.4474(3.06) ***
0.5803(4.12) ***
0.5792(4.12) ***
CV --0.2265
(-1.90) *
-0.2163
(-1.82) *
-0.2439
(-1.94) *
-0.2345
(-1.86) *
-0.3402
(-2.72) ***
-0.3297
(-2.64) ***
CHAIN --0.1237
(-2.38) **
-0.1221
(-2.35) **
-0.1184
(-2.23) **
-0.1171
(-2.20) **
-0.1385
(-2.59) ***
-0.1371
(-2.56) ***
STATECHAIN +0.1263
(2.21) **
0.1131
(1.94) *
0.1208
(2.07) **
0.1105
(1.86) *
0.1260
(2.13) **
0.1139
(1.89) *
ARECNO --3.8359
(-10.03) ***
-3.8320
(-10.03) ***
-3.8659
(-9.87) ***
-3.8631
(-9.86) ***
-3.8743
(-10.41) ***
-3.8774
(-10.42) ***
GROWTH -0.0590
(1.80) *
0.0588
(1.79) *
0.0544
(1.58)
0.0541
(1.57)
0.0538
(1.57)
0.0536
(1.56)ROA +
11.5901
(9.43) ***
11.6012
(9.42) ***
11.3555
(9.31) ***
11.3665
(9.30) ***
11.2346
(8.82) ***
11.2429
(8.81) ***
FCF +-0.6594
(-3.32) ***
-0.6723
(-3.38) ***
-0.6852
(-3.40) ***
-0.6951
(-3.44) ***
-0.7532
(-3.70) ***
-0.7643
(-3.74) ***
PREFINANCE +-0.1382
(-2.24) **
-0.1375
(-2.23) **
-0.1531
(-2.42) **
-0.1526
(-2.42) **
-0.1277
(-2.05) **
-0.1275
(-2.04) **
STDIV -0.4884
(5.37) ***
0.4893
(5.39) ***
0.4932
(5.32) ***
0.4940
(5.33) ***
0.4831
(5.19) ***
0.4840
(5.21) ***
LEV --0.6266
(-4.43) ***
-0.6183
(-4.37) ***
-0.6366
(-4.40) ***
-0.6296
(-4.35) ***
-0.5718
(-3.87) ***
-0.5608
(-3.79) ***
Constant
-0.7971
(-3.45) ***
-0.8156
(-3.53) ***
-0.7392
(-3.16) ***
-0.7551
(-3.23) ***
-0.7627
(-3.18) ***
-0.7818
(-3.26) ***YearDummy Control Control Control Control Control Control
IndDummy Control Control Control Control Control ControlN 6531 6531 6234 6234 5900 5900
Wald-Chi2 1404.98 1406.08 1327.54 1327.78 1280.80 1282.95
Pseudo R2 0.3330 0.3332 0.3289 0.3291 0.3204 0.3206
In the parentheses is the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level.
Deleted:
**, **, and * denote statisticalsignificance at the 0.01, 0.05, and 0.10
level, respectively.
Section Break (Next Page)
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Table 7: Linear Regression on the Determinants of Cash Dividends Per Share
Variables ExpSignModel
All sample
Model
All sample
Model
V>0.2
Model
V>0.2
Model
A-Share
Model
A-Share
PREDPS +0.3185
(14.33) ***
0.3183
(14.32) ***
0.3042
(13.61) ***
0.3040
(13.60) ***
0.2872
(12.47) ***
0.2870
(12.46) ***
STATE --0.0184
(-2.30) **-0.0194
(-2.34) **-0.0170
(-2.08) **
CentralGov --0.0138
(-1.59)
-0.0151
(-1.67) *
-0.0116
(-1.28)
LocalGov --0.0178
(-2.22) **-0.0189
(-2.27) **-0.0163
(-1.98) **
C + 0.0558(6.78) ***
0.0559(6.80) ***
0.0646(7.28) ***
0.0646(7.29) ***
0.0701(7.94) ***
0.0701(7.94) ***
CV --0.0224
(-3.86) ***
-0.0218
(-3.77) ***
-0.0256
(-4.23) ***
-0.0250
(-4.12) ***
-0.0254
(-4.12) ***
-0.0246
(-3.99) ***
CHAIN --0.0079
(-3.06) ***
-0.0078
(-3.03) ***
-0.0079
(-2.99) ***
-0.0078
(-2.96) ***
-0.0076
(-2.88) ***
-0.0075
(-2.84) ***
STATECHAIN +0.0059
(1.99) **0.0051(1.70) *
0.0062(2.03) **
0.0055(1.77) *
0.0054(1.78) *
0.0045
(1.45)
ARECNO --0.0504
(-4.79) ***
-0.0502
(-4.78) ***
-0.0506
(-4.56) ***
-0.0505
(-4.56) ***
-0.0507
(-4.44) ***
-0.0509
(-4.46) ***
GROWTH --0.0019
(-1.43)
-0.0019
(-1.42)
-0.0021
(-1.45)
-0.0021
(-1.45)
-0.0019
(-1.35)
-0.0018
(-1.34)EPS +
0.0960
(13.87) ***
0.0958
(13.88) ***
0.0984
(13.65) ***
0.0983
(13.67) ***
0.0955
(12.82) ***
0.0955
(12.84) ***
FCFPS +0.0033
(1.77) *
0.0032
(1.73) *
0.0025
(1.33)
0.0024
(1.29)
0.0024
(1.25)
0.0023
(1.21)
PREFINANCE +-0.0057
(-1.65) *
-0.0057
(-1.64)-0.0070
(-1.95) *
-0.0069
(-1.94) *
-0.0052
(-1.47)
-0.0052
(-1.45)
STDIVPS --0.0518
(-2.39) **
-0.0519
(-2.39) **
-0.0526
(-2.37) **
-0.0527
(-2.37) **
-0.0601
(-2.76) ***
-0.0602
(-2.77) ***
LEV --0.0061
(-1.69) *
-0.0060
(-1.68) *
-0.0081
(-1.79) *
-0.0079
(-1.74) *
-0.0041
(-0.96)
-0.0038
(-0.87)
Constant0.0315
(3.16) ***
0.0309
(3.09) ***
0.0322
(3.14) ***
0.0314
(3.06) ***
0.0281
(2.68) ***
0.0270
(2.57) ***YearDummy Control Control Control Control Control Control
IndDummy Control Control Control Control Control Control
N 6531 6531 6234 6234 5900 5900
F 57.88 56.24 53.26 51.76 51.33 49.85
R2 0.3606 0.3608 0.3570 0.3572 0.3411 0.3414
In the parentheses is the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level.
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Table 8: Linear Regression on the Determinants of Cash Dividend Payout Ratio
Variables ExpSignModel
All sample
Model
All sample
Model
V>0.2
Model
V>0.2
Model
A-Share
Model
A-Share
PREPAYOUT +0.2198
(11.16) ***
0.2196
(11.14) ***
0.2146
(10.77) ***
0.2145
(10.76) ***
0.2027
(9.92) ***
0.2026
(9.91) ***
STATE --0.0498
(-1.50)
-0.0438
(-1.26)
-0.0411
(-1.19)
CentralGov --0.0394
(-1.07)
-0.0372
(-0.96)
-0.0329
(-0.85)
LocalGov --0.0484
(-1.45)
-0.0429
(-1.23)
-0.0400
(-1.15)
C + 0.1998(5.80) ***
0.1999(5.81) ***
0.2081(5.38) ***
0.2081(5.38) ***
0.2316(6.25) ***
0.2315(6.25) ***
CV --0.0647
(-2.60) ***
-0.0634
(-2.55) **
-0.0683
(-2.52) **
-0.0673
(-2.48) ***
-0.0788
(-2.92) ***
-0.0776
(-2.87) ***
CHAIN --0.0359
(-3.50) ***
-0.0358
(-3.48) ***
-0.0343
(-3.23) ***
-0.0342
(-3.22) ***
-0.0359
(-3.35) ***
-0.0357
(-3.33) ***
STATECHAIN +0.0245
(2.10) **0.0228(1.89) *
0.0230(1.91) *
0.0220(1.76) *
0.0244(1.99) **
0.0230(1.81) *
ARECNO --0.4821
(-10.49) ***
-0.4817
(-10.49) ***
-0.4812
(-9.71) ***
-0.4810
(-9.71) ***
-0.4812
(-9.73) ***
-0.4813
(-9.74) ***
GROWTH --0.0139
(-2.55) **
-0.0139
(-2.54) **
-0.0146
(-2.48) **
-0.0146
(-2.49) **
-0.0139
(-2.38) **
-0.0139
(-2.38) **ROA +
0.3553
(6.77) ***
0.3547
(6.77) ***
0.3656
(6.47) ***
0.3657
(6.48) ***
0.3198
(5.65) ***
0.3198
(5.66) ***
FCF +-0.0192
(-0.45)
-0.0209
(-0.48)
-0.0272
(-0.61)
-0.0283
(-0.63)
-0.0171
(-0.37)
-0.0185
(-0.40)
PREFINANCE +-0.0110
(-0.70)
-0.0109
(-0.70)
-0.0134
(-0.83)
-0.0134
(-0.83)
-0.0106
(-0.66)
-0.0105
(-0.66)
STDIV --0.0881
(-8.09) ***
-0.0882
(-8.10) ***
-0.0904
(-8.07) ***
-0.0904
(-8.08) ***
-0.0930
(-8.24) ***
-0.0930
(-8.25) ***
LEV --0.1373
(-5.99) ***
-0.1371
(-6.00) ***
-0.1634
(-5.95) ***
-0.1630
(-5.92) ***
-0.1559
(-5.98) ***
-0.1553
(-5.96) ***
Constant0.2845
(7.04) ***
0.2829
(7.00) ***
0.3027
(7.15) ***
0.3014
(7.11) ***
0.2885
(6.76) ***
0.2868
(6.71) ***YearDummy Control Control Control Control Control Control
IndDummy Control Control Control Control Control Control
N 6531 6531 6234 6234 5900 5900
F 49.25 47.89 47.12 45.76 44.69 43.70
R2 0.1659 0.1659 0.1629 0.1629 0.1602 0.1602
In the parentheses is the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level.
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Table 9: Probit Model on the Determinants of Cash Dividend Policy on Systematically Change
VariablesModel
02-04
Model
02-04
Model
99-01
Model
99-01
Model
02-04
v>0.2
Model
02-04
v>0.2
Model
99-01
v>0.2
Model
99-01
v>0.2
Model
02-04
A-Share
Model
02-04
A-Share
Model
99-01
A-Share
Model
99-01
A-Share
PREDIV1.0583
(19.33)
***
1.0583
(19.33)
***
0.5874
(9.75)
***
0.5860
(9.71)
***
1.0734
(19.24)
***
1.0734
(19.24)
***
0.5707
(9.28)
***
0.5695
(9.25)
***
0.9863
(17.34)
***
0.9862
(17.34)
***
0.4999
(7.74)
***
0.5009
(7.75)
***
STATE -0.0845(-0.42)
-0.1943(-0.90)
-0.0227(-0.11)
-0.2000(-0.90)
-0.0775(-0.38)
-0.1895(-0.86)
CentralGov-0.0718
(-0.33)
-0.0194
(-0.08)
-0.0237
(-0.11)
-0.0414
(-0.17)
-0.0406
(-0.18)
-0.0644
(-0.27)
LocalGov-0.0831
(-0.42)
-0.1665
(-0.77)
-0.0228
(-0.11)
-0.1759
(-0.79)
-0.0734
(-0.36)
-0.1699
(-0.77)
C
0.5438
(2.78)
***
0.5430
(2.78)
***
0.3261
(1.74)
*
0.3370
(1.79)
*
0.5474
(2.58)
***
0.5475
(2.59)
***
0.3476
(1.71)
*
0.3534
(1.74)
*
0.7034
(3.47)
***
0.7006
(3.46)
***
0.5006
(2.53)
**
0.5052
(2.55)
**
CV
-0.2471
(-1.52)
-0.2454
(-1.51)
-0.2329
(-1.27)
-0.2081
(-1.14)
-0.2497
(-1.46)
-0.2498
(-1.46)
-0.2471
(-1.28)
-0.2196
(-1.13)-0.3530(-2.09)
**
-0.3480(-2.06)
**
-0.3515(-1.80)
*
-0.3302(-1.69)
*
CHAIN-0.1233(-1.72)
*
-0.1231(-1.71)
*
-0.1185
(-1.47)
-0.1144
(-1.42)
-0.1137
(-1.54)
-0.1137
(-1.54)
-0.1225
(-1.47)
-0.1183
(-1.42)-0.1269(-1.72)
*
-0.1263(-1.72)
*
-0.1577(-1.87)
*
-0.1545(-1.84)
*
STATECHAIN
0.1027
(1.29)
0.1007
( 1.24)
0.1512
(1.73)*
0.1203
(1.35)
0.0882
(1.08)
0.0883
(1.06)
0.1616
(1.80)*
0.1336
(1.47)
0.0985
(1.21)
0.0928
(1.12)
0.1700
(1.86)*
0.1479
(1.59)
ARECNO-5.3638
(-7.44)
***
-5.3665
(-7.45)
***
-3.0008
(-7.37)
***
-2.9674
(-7.27)
***
-5.4135
(-7.34)
***
-5.4132
(-7.34)
***
-3.0441
(-7.27)
***
-3.0121
(-7.18)
***
-5.3441
(-7.34)
***
-5.3548
(-7.36)
***
-2.9720
(-7.56)
***
-2.9609
(-7.53)
***
GROWTH0.1133
(2.62)
***
0.1134
(2.62)
***
-0.0022
(-0.04)
-0.0035
(-0.07)0.1278
(2.67)
***
0.1278
(2.67)
***
-0.0254
(-0.48)
-0.0268
(-0.51)0.1078
(2.43)
**
0.1079
(2.43)
**
-0.0189
(-0.34)
-0.0202
(-0.37)
ROA12.0519
(6.13)
***
12.0520
(6.12)
***
11.2948
(10.61)
***
11.3407
(10.57)
***
11.7811
(6.09)
***
11.7811
(6.09)
***
11.1491
(10.40)
***
11.1978
(10.36)
***
11.6794
(5.77)
***
11.6818
(5.77)
***
11.0744
(9.93)
***
11.0932
(9.90)
***
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FCF-0.2101(-0.78)
-0.2120(-0.79)
-1.0473
(-3.49)
***
-1.0818
(-3.59)
***
-0.2224(-0.82)
-0.2223(-0.82)
-1.0962
(-3.59)
***
-1.1257
(-3.68)
***
-0.2891(-1.04)
-0.2940
(-1.06)-1.1445
(-3.73)
***
-1.1688
(-3.80)
***
PREFINANCE0.0657(0.54)
0.0664(0.54)
-0.1741
(-2.57)
***
-0.1754
(-2.59)
***
0.0413(0.33)
0.0412(0.33)
-0.1872
(-2.70)
***
-0.1885
(-2.73)
***
0.0800(0.66)
0.0818(0.68)
-0.1684
(-2.43)
**
-0.1698
(-2.46)
**
STDIV0.8541
(5.20)
***
0.8538
(5.20)
***
0.2573
(2.38)
**
0.2618
(2.43)
**
0.8701
(5.13)
***
0.8702
(5.13)
***
0.2571
(2.33)
**
0.2605
(2.37)
**
0.8365
(5.10)
***
0.8359
(5.10)
***
0.2502
(2.25)
**
0.2539
(2.28)
**
LEV-0.7192(-3.75)
***
-0.7177(-3.74)
***
-0.4964(-2.73)
***
-0.47914(-2.63)
***
-0.7394(-3.78)
***
-0.7395(-3.78)
***
-0.4938(-2.64)
***
-0.4772(-2.55)
**
-0.6244(-3.17)
***
-0.6183(-3.15)
***
-0.4784(-2.45)
**
-0.4609(-2.35)
**
Constant
-0.4238
(-1.45)
-0.4261
(-1.46)-0.6188
(-2.07)
**
-0.6703
(-2.23)
**
-0.3768
(-1.27)
-0.3766
(-1.27)-0.5401
(-1.75)
*
-0.5920
(-1.91)
*
-0.3810
(-1.26)
-0.3888
(-1.29)-0.5219
(-1.67)
*
-0.5629
(-1.79)
*YearDummy Control Control Control Control Control Control Control Control Control Control Control Control
IndDummy Control Control Control Control Control Control Control Control Control Control Control Control
N 3624 3624 2907 2907 3448 3448 2786 2786 3294 3294 2606 2606
Wald-Chi 881.60 883.51 639.11 639.10 830.92 831.51 608.40 608.47 778.18 779.84 599.27 600.93Pseudo R2 0.3967 0.3967 0.2783 0.2793 0.3940 0.3940 0.2755 0.2763 0.3790 0.3790 0.2717 0.2722
In the parentheses are the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level,respectively.
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Table 10: Linear Regression on the Determinants of Cash Dividends Per Share on Systematically Change
VariablesModel
02-04
Model
02-04
Model
99-01
Model
99-01
Model
02-04
v>0.2
Model
02-04
v>0.2
Model
99-01
v>0.2
Model
99-01
v>0.2
Model
02-04
A-Share
Model
02-04
A-Share
Model
99-01
A-Share
Model
99-01
A-Share
PREDIV0.4417
(15.95)
***
0.4417
(15.94)
***
0.1862
(6.21)
***
0.1858
(6.21)
***
0.4345
(15.60)
***
0.4345
(15.59)
***
0.1672
(5.72)
***
0.1665
(5.71)
***
0.4133
(14.36)
***
0.4133
(14.35)
***
0.1501
(4.92)
***
0.1498
(4.91)
***
STATE -0.0152(-1.42)
-0.0279(-2.29)
**
-0.0164(-1.47) -0.0283(-2.23)
**
-0.0132(-1.20) -0.0293(-2.39)
**
CentralGov-0.0159
(-1.37)
-0.0170
(-1.30)
-0.0179
(-1.48)
-0.0164
(-1.20)
-0.0130
(-1.06)
-0.0181
(-1.34)
LocalGov
-0.0153
(-1.43)-0.0263(-2.16)
**
-0.0165
(-1.49)-0.0267(-2.09)
**
-0.0132
(-1.19)-0.0277(-2.25)
**
C0.0515
(4.44)***
0.0515
(4.44)***
0.0528
(4.53)***
0.0534
(4.59)***
0.0576
(4.57)***
0.0577
(4.57)***
0.0613
( 4.98)***
0.0617
(5.03)***
0.0656
(5.28)***
0.0656
(5.28)***
0.0667
(5.30)***
0.0669
(5.33)***
CV
-0.0242
(-3.29)***
-0.0243
(-3.30)***1
-0.0123(-1.34)
-0.0109
(-1.19)
-0.0268
(-3.45)***
-0.0270
(-3.48)***
-0.0135
(-1.44)
-0.0117
(-1.24)
-0.0278
(-3.53)***
-0.0278
(-3.52)***
-0.0137
(-1.42)
-0.0120
(-1.24)
CHAIN-0.0079
(-2.39)
**
-0.0079
(-2.39)
**
-0.0094
(-2.37)
**
-0.0092
(-2.32)
**
-0.0081
(-2.38)
**
-0.0081
(-2.39)
**
-0.0090
(-2.21)
**
-0.0087
(-2.15)
**
-0.0074
(-2.14)
**
-0.0074
(-2.13)
**
-0.0105
(-2.70)
***
-0.0102
(-2.64)
***
STATECHAIN
0.0060
(1.53)
0.0061
(1.53)
0.0075
(1.71)
*
0.0057
(1.26)
0.0063
(1.58)
0.0066
(1.61)
0.0077
(1.69)
*
0.0056
(1.22)
0.0047
(1.17)
0.0047
(1.13)
0.0093
(2.11)
**
0.0074
(1.64)
ARECNO-0.0142(-0.96)
-0.0141(-0.96)
-0.0822
(-5.60)
***
-0.0807
(-5.51)
***
-0.0155(-0.98)
0.327
-0.0153(-0.97)
0.334
-0.0801
(-5.28)
***
-0.0784
(-5.19)
***
-0.0146(-0.93)
-0.0146(-0.93)
-0.0845
(-5.18)
***
-0.0837
(-5.14)
***
GROWTH-0.0004
(-0.27)
-0.0004(-0.27)
-0.0047(-2.06)
**
-0.0047(-2.07)
**
-0.00004(-0.02)
-0.00004(-0.02)
-0.0053(-2.32)
**
-0.0054(-2.33)
**
-0.0008(-0.51)
-0.0008(-0.51)
-0.0042(-1.62)
-0.0042(-1.63)
EPS 0.0812 0.0812 0.1215 0.1212 0.0835 0.0835 0.1222 0.1220 0.0820 0.0820 0.1175 0.1172
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(9.52)
***
(9.54)
***
(10.83)
***
(10.83)
***
(9.32)
***
(9.32)
***
(10.57)
***
(10.58)
***
(8.90)
***
(8.90)
***
(9.66)
***
(9.65)
***
FCFPS0.0048
(2.24)
**
0.0048
(2.26)
**
0.0026
(0.74)
0.0023
(0.67)0.0043
(1.95)
*
0.0043
(1.97)
**
0.0017
(0.50)
0.0015
(0.42)0.0044
(1.92)
*
0.0044
(1.93)
*
0.0005
(0.14)
0.0002
(0.07)
PREFINANCE-0.0057(-1.03)
-0.0057(-1.03)
-0.0059(-1.43)
-0.0060(-1.44)
-0.0079(-1.36)
-0.0080(-1.37)
-0.0069(-1.62)
-0.0069(-1.63)
-0.0053(-0.94)
-0.0053(-0.94)
-0.0052(-1.21)
-0.0052(-1.22)
STDIVPS
-0.0153
(-0.48)
-0.0152
(-0.47)-0.1022
(-3.65)
***
-0.1010
(-3.61)
***
-0.0144
(-0.44)
-0.0141
(-0.43)-0.1027
(-3.59)
***
-0.1016
(-3.56)
***
-0.0128
(-0.38)
-0.0128
(-0.38)-0.1147
(-4.22)
***
-0.1134
(-4.17)
***
LEV-0.0061
(-1.67)
*
-0.0061
(-1.67)
*
0.0013
(0.15)
0.0018
(0.20)-0.0086
(-1.74)
*
-0.0087
(-1.75)
*
-0.0005
(-0.06)
-1.50e-07
(-0.00)
-0.0049
(-1.07)
-0.0049
(-1.06)
0.0033
(0.36)
0.0041
(0.44)
Constant0.0411
(3.35)
***
0.0412
(3.35)
***
0.0362
(2.33)
**
0.0339
(2.17)
**
0.0445
(3.50)
***
0.0448
(3.50)
***
0.0341
(2.19)
**
0.0313
(2.00)
**
0.0409
(3.16)
***
0.0409
(3.14)
***
0.0342
(2.17)
**
0.0314
(1.98)
**
YearDummy Control Control Control Control Control Control Control Control Control Control Control Control
IndDummy Control Control Control Control Control Control Control Control Control Control Control ControlN 3624 3624 2907 2907 3448 3448 2786 2786 3294 3294 2606 2606
F 52.73 50.80 26.05 25.63 49.16 47.37 24.22 23.88 47.04 45.34 23.13 22.64
R2 0.4363 0.4363 0.2926 0.2937 0.4349 0.4349 0.2877 0.2891 0.4193 0.4193 0.2712 0.2724
In the parentheses are the White adjusted t statistics considering the heteroscedasticity; ***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 level,
respectively.
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Table 11: Linear Regression on the Determinants of Cash Dividend Payout Ratio on Systematically Change
VariablesModel
02-04
Model
02-04
Model
99-01
Model
99-01
Model
02-04
v>0.2
Model
02-04
v>0.2
Model
99-01
v>0.2
Model
99-01
v>0.2
Model
02-04
A-Share
Model
02-04
A-Share
Model
99-01
A-Share
Model
99-01
A-Share
PREPAYOUT0.31